I see people talking about Inflation all day & i wonder why there is so much of fuss about it. Too much of inflation may not be good but it's always better than deflation. Isn't it? Imagine you bought a piece of land for Rs.50 Million & the market value comes down to Rs. 40 Milion next year. that is delfation. Nobody talks about how much did they earn with rise in land prices, but costlier petrol takes their breath away.
Why is the government so concerned about rising prices? Yes, An individual may be worried about it because the government is spoiling every industry by keeping Rupee strong against USD & Prices are on an uptrend. But how much does that matter? How much will it matter if the Gas Cylinder price goes up to Rs.350/- from Rs.300/-. I think it doesn't change anyone's budget by more than .01%. Don't you get an increment every year in your salary? Every employee, either in private or public sector company, earns in black in addition to his regular income.
Those who spend Rs.50/- on PEPSI in a hotel shouldn't even talk about rising prices & inflation. Anyone who gives inflation more than required hype or importance is yet to learn what it is all about & he is yet know that its not inflation... it's called "POLITICS"
What causes prices to rise? An addition in money supply in National money market will rise prices to go up. So with a lot of investment taking place in india from abroad money supply is bound to rise.To control that Govt tightens the money supply by bringing in various FOREX, monetary & fiscal policies. for example the govt may raise CRR (I took this example because the layman will easily understand this, you know everyone watches CNBC now a days irrespective of their level of understanding). Otherwise the govt may issue short or mid term bonds with RBI to stop inflow of funds in market. Anyways, With rise in CRR cost of funds for Banks will go up & they will normally increase Loan interest rates at a rate more than the increase in cost of funds. Well however i believe this impact will directly not have a large impact on the prices of consumer goods.
Think, what makes India such an interesting venue for investment? A week Rupee against foreign currencies. WHy? One dollar of investment by an american gives them an investment of Rs.45 in india. They can do much more with Rs.45 in india than what they can do with 1$. So the govt will try to strengthen rupee & bring it up to Rs.40/- or even Rs.38/- to limit the inflow of funds.
When the Rupee going up to Rs.38/- & Chinese/Bangladesh's money pegged to $ at much weeker rate, this certainly is going to hamper Indian exports. I could make a luxury pen for Rs. 40/- & i was exporting it for (1$ for buyer) Rs.45/-. But Now my has gone up to Rs.40.50 (INcrease in labour & Material cost) but buyer is willing to buy it for 1$ which will yield only Rs.38. That gives me a net loss of Rs.2.50/- per piece. Rise in cost inputs wouldn't have mattered much for me if the $ had stayed at Rs. 45 or a more favorable rate, but now its killing me.
But it's ok, i am a good company & i can plan to launch my pen in Indian domestic market. So i am going to sell the pen in indian market for Rs.45/- (Mind it, I am not going to get any duty drawback on this). My expenses will certainly go up since i will need to hire a marketing team but anyhow i can manage to forget it. But hey what is this?? Chinese people are selling their pen in india for Rs.38/-. How? They were earlier offering their pen for 1$ (Lets not get into the Yuan exchange rate as that will make example comlicated) which meant Rs.45 for indian importer, But now Indian importer will only need to pay Rs.40/- to make 1$. So that means MORE IMPORTS & LESS EXPORT business. It will hit the domestic industry & industry will find it difficult to survive.
Domesitc industry could be taken to new heights if the $ was equal to Rs.55/- or more. Imagine the profits, industry will multiply & so will the employment opportunities, Income, Tax collections & standard of living of the common man. Government could keep FOREX policies more organised to stop inflow of temporary funds which can hamper long term growth prospects of country. Organised doesn't mean tight here. Foreign investment shall be welcome to speed up the growth prospects of country but policies could be framed to stop sudden outflow of funds to save country from a crisis similar to SOUTH ASIAN CRISIS.
Inflow of funds, industrial growth will certainly mean rise in inflation which may go up to 10-14% but whats the problem if income goes up by a higher level. Those who talk about rising inflation today simply forget the fact that change in Income Tax slabs make them pay lesser tax than before & if they will compare savings with increase in expenses they will find themselves very comfortable.
Yes, those who are very poor & are just hand to mouth. Well they are not much affected by rise in petrol/diesel or Gas cylinder price & there income too has gone up significantly. For example daily wage of basic labour has gone up to 150-200 Rs. I was paying Rs.1800 pm + overtime to basic labour a year back & within one year it has gone upto 2600+overtime. I am sure inflation is less than that. People just dont accept the fact that increase in their salaries & incomes add to the cost of product & causes a rise in price, thus inflation.
So stop worrying about inflation if you got a 5-10% rise in your salary in last one year & in case you haven't got the rise... change your job. Get a hike & push inflation further....
;-)
Your country is growing. Govt is hurting industry by making extra ordinary effort to keep inflation under control.INFLATION IS NOT SO BAD & ITS BETTER THAN DEFLATION. दाग अच्छे हैं
In nutshell, SHUT UP & GET BACK TO WORK.
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